What is a Mutual Fund?

What is a Mutual Fund?

A Mutual Fund is a body corporate registered with SEBI (Securities Exchange

Board of India) that pools money from individuals/corporate investors and

invests the same in a variety of different financial instruments or securities

such as equity shares, Government securities, Bonds, debentures etc.

Mutual funds can thus be considered as financial intermediaries in the

investment business that collect funds from the public and invest on behalf

of the investors. Mutual funds issue units to the investors. The appreciation

of the portfolio or securities in which the mutual fund has invested the

money leads to an appreciation in the value of the units held by investors.

The investment objectives outlined by a Mutual Fund in its prospectus are

binding on the Mutual Fund scheme. The investment objectives specify the

class of securities a Mutual Fund can invest in. Mutual Funds invest in

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various asset classes like equity, bonds, debentures, commercial paper and

government securities. The schemes offered by mutual funds vary from fund

to fund. Some are pure equity schemes; others are a mix of equity and

bonds. Investors are also given the option of getting dividends, which are

declared periodically by the mutual fund, or to participate only in the capital

appreciation of the scheme.